Mainland Chinese family businesses are more optimistic about growth than their Hong Kong and global peers – PwC’s Global Family Business Survey

The key priorities facing Hong Kong family businesses over the next two years are: expanding into new markets/client segments; increasing use of new technologies; and introducing new products/services.

PwC has released its Global Family Business Survey 2021 - China Report. The COVID-19 pandemic has forced family businesses to make vital strategic decisions both to survive the current crisis and to grow their business over a longer time horizon. At the same time, however, these firms must uphold their values and corporate purpose in their interactions with stakeholders. Beyond financial performance, family firms place a great emphasis on protecting their reputation and preserving their family legacy.

The global survey was conducted between October and December 2020, capturing the insights of 2,801 family businesses from 87 territories and a range of industry sectors. The China report presents the views of 129 executives based in Mainland China and Hong Kong.

The report found that Mainland Chinese family businesses are more optimistic than their Hong Kong peers and the global average in terms of their growth aims in 2021 and 2022. 73% of family businesses in Mainland China expect to see their business grow in 2021 (Hong Kong: 53%; Global: 65%) while 89% expect to see growth in 2022 (Hong Kong: 83%; Global: 86%). Such optimism is likely to have been buoyed by the strong economic recovery resulting from effective countrywide COVID-19 containment measures, policies guiding businesses to resume production, tax and fee reductions and exemptions, and central bank liquidity support to combat the pandemic.

The public health crisis has caused widespread disruption resulting in severe socio-economic consequences for all sectors of society, including family businesses. Survey results show that 59% of family businesses in Hong Kong have seen a reduction in profits in 2020 (Mainland China:54%; Global: 51%), but only 18% have seen a need for additional capital (Mainland China: 27%; Global: 21%). With regards to sacrifices they have made or are planning to make in light of the public health crisis, 45% of family firms in Hong Kong have taken or expect to take a bonus cut (Mainland China: 33%; Global: 47%) and 41% expects a reduction in dividend pay-outs (Mainland China: 49%; Global: 57%).

During this period, most family businesses in Mainland China and Hong Kong took measures to tide over their employees and the community. 68% of Hong Kong respondents enabled their staff to work from home (Mainland China: 75%; Global: 80%) while 64% sought to retain as many staff as possible (Mainland China: 70%; Global: 71%).

By going above and beyond to protect their staff and support their local communities amidst the pandemic, family businesses have reinforced their values and sense of purpose. 53% of Hong Kong family firms state they have a clear sense of values and purpose as a company (Mainland China: 65%; Global: 68%) and 30% found that this helped them during the ongoing health crisis (Mainland China: 51%; Global: 52%). However, only 32% of Hong Kong respondents and 38% of Mainland Chinese respondents have their values and company mission articulated in written form (lower than the global average of 44%).

PwC Mainland China and Hong Kong’s Family Business & Private Client Services Leader, Partner, John Wong said: “Develop a clear set of family values and company mission, and articulate these in a written form is essential. This will ensure there is family alignment on the company’s direction and will help in preserving the family’s legacy as the businesses is handed down to future generations. Codifying family values in a written form is one method of ensuring that these values can be communicated to the board, management and company employees in a consistent way.”

The survey shows that the key priorities facing Hong Kong family businesses over the next two years include expansion into new markets/client segments (53%; Global: 55%), increasing their use of new technologies (52%; Global: 49%), and product/service diversification (50%; Global: 50%). A higher proportion of family business respondents in Hong Kong have used technology to create new business opportunities relative to their Mainland China or global peers (Hong Kong: 64%; Mainland China: 55%; Global: 56%).

For longer-term goals (five years or more), 67% of family businesses in Hong Kong aim to protect their business as the most important family asset (Mainland China: 83%; Global: 82%) and 61% create dividends for family members (Mainland China: 71%; Global: 63%). Relative to peers in Hong Kong or globally, a slightly lower proportion of businesses in Mainland China are concerned about ensuring the business stays within the family, representing 59% (Hong Kong: 65%; Global: 65%) or creating a legacy, representing 57% (Hong Kong: 59%; Global: 64%). This may be because these firms are less likely to have next generation family members (NextGens) that are willing to take up the mantle after the founder steps down. 42% of the Hong Kong respondent sample have no NextGens involved in the business, higher than the global average (38%).

PwC Hong Kong’s Entrepreneurial & Private Business Regional Lead Partner – Hong Kong, Benson Wong, said: “NextGens of family businesses in Hong Kong would rather work for themselves or in more popular industries such as banking, investment and technology. On the other hand, the handover of control to external managers can also be viewed as a natural progression in the lifecycle of a family business as it matures. As they develop, family businesses in Hong Kong are more likely to bring in external management, expertise and funding to further commercialise their operations.”

The report also found that family businesses value their environmental, social and governance (ESG) profiles. The public health crisis has shown how quickly a high-impact, low-probability event can disrupt business as usual. Family businesses that are not showcasing their commitment to their stakeholders and society will likely be at a higher risk of getting left behind or even penalised for their inaction.

Encouragingly, the survey finds that 79% of Mainland Chinese family businesses “strongly agree” or “agree” that sustainability is at the heart of everything they do (Hong Kong: 50%; Global: 49%). While 67% say they have a developed and communicated sustainability strategy (Hong Kong: 39%; Global: 37%). Going forward, 65% of Chinese family businesses say there is an opportunity for family businesses like theirs to lead the way in sustainable business practices (Hong Kong: 35%; Global: 55%) and 71% feel that businesses will need to deliver greater benefits for the planet and society (Hong Kong: 41%; Global: 53%).

John Wong added: “Family businesses should go beyond traditional corporate social responsibility (CSR) activities, which, while unequivocally good, are not necessarily integrated into a company’s core operations. Companies that integrate ESG factors into their growth strategy and business decisions are better equipped to manage risks, capture opportunities and deliver long-term profitability. Establishing a company’s purpose can help articulate the means by which a business brings solutions to economic, environmental and social needs, and create a tangible link between business strategy and family values.”